Hutchison continues pivot to Europe

WayneMa

HONG KONG--Hong Kong tycoon Li Ka-shing's Hutchison Whampoa Ltd. continues to reduce its exposure to Hong Kong and China in favor of Europe as the ports-to-telecoms conglomerate seeks more predictable and lucrative returns.

Hong Kong-based Hutchison said Thursday that its European business comprised 42% of its operating profit last year, up from 37% in 2013. That exceeded a combined contribution of 30% from China and Hong Kong, with the gap in earnings between the two regions widening significantly when compared with previous years. Europe's contribution surpassed Hong Kong and China's for the first time in 2012.

Some industry insiders say the move is part of a long-term succession plan by Mr. Li to shift investments away from riskier locations and sectors and into parts of the economy that produce more stable and reliable returns. Earlier this year, Mr. Li announced a string of deals in Europe that included takeover bids for a British train-car maker, a Dutch drugstore chain and a U.K. mobile-phone operator.

Mr. Li said Thursday that he hasn't set a date for his retirement but would consider stepping down when the group "moves to the next stage."

Even when the octogenarian does retire, he said he wouldn't stop working. "I may consider being a special adviser after retirement," he told reporters at an earnings news conference for his two listed flagship companies, Cheung Kong Holdings Ltd. and Hutchison. He said he would like to give policy advice "when the group involves major investments."

Hutchison on Thursday reported net profit of 67.16 billion Hong Kong dollars ($8.7 billion), which more than doubled from a year earlier because of one-time gains such as the listing of its Hong Kong electricity business and a significant property revaluation. Excluding the gains, the company recorded net profit of 32.01 billion Hong Kong dollars, lower than an average forecast of 32.12 billion Hong Kong dollars in a poll of seven analysts by Thomson Reuters. Hutchison reported revenue of 421.47 billion Hong Kong dollars, up 2% from the previous year.

Mr. Li, 86 years old, is reorganizing Hutchison and Cheung Kong into two new companies and splitting his Hong Kong property assets from his internationally focused conglomerate. The reorganization aims to eliminate the current tiered holding structure of Cheung Kong's 49.97% stake in Hutchison. Hutchison's business interests encompass ports, energy, property and retailing.

Hutchison said in a statement that a slow property market in mainland China and a plunge in crude-oil prices weighed on earnings in the second half of 2014. However, those declines were offset by gains in the company's retail businesses and European telecommunications operations.

Speaking to reporters after the results, Hutchison's managing director Canning Fok played down the importance of Europe compared with Hong Kong and China. Mr. Fok said there were simply better deal opportunities in Europe, especially in industries such as telecommunications, infrastructure and retail. Italy, for example, remains a country where Mr. Fok said he supports telecom consolidation. Hutchison previously failed to buy and merge Telecom Italia's operations with its own mobile carrier there.

In contrast, Hutchison said in a statement that it experienced slower property sales in first- and second-tier cities in China. The company said it would "strategically time" the completion and new sales of some projects pending an improvement in the market.

In the case of Hong Kong, Mr. Fok said Hutchison already has saturated it with investments. "Already, people say that when they wake up, it's Mr. Li, and when they sleep, it's Mr. Li. I don't think there's really much more we can do--we have done a lot."

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